What's in a Mortgage Payment?
Your monthly mortgage payment is more than just repaying the loan. Knowing what each part is (and how it's calculated) makes it far easier to budget for a home. This guide breaks it down with a clear example. To run your own numbers, use the free mortgage calculator.
In short: a typical payment is made of four parts known as PITI (Principal, Interest, Taxes, and Insurance), plus PMI if your down payment is under 20%, and HOA dues if your home has them.
The four core parts: PITI
Lenders group the main pieces of your payment into an acronym, PITI:
- Principal: the part that actually pays down what you borrowed. Each month a little more goes here.
- Interest: the cost of borrowing, charged on your remaining balance. Early on, this is the biggest slice.
- Taxes: property taxes set by your local government. The lender usually collects 1/12 each month and pays the bill from escrow.
- Insurance: homeowners insurance, also collected monthly and paid from escrow.
Two more that often apply: PMI and HOA
PMI (private mortgage insurance) is usually required on a conventional loan when your down payment is under 20%. It protects the lender, not you, and typically costs about 0.5%–1.5% of the loan per year. The good news: you can usually have it removed once you reach around 20% equity.
HOA dues apply if your home is in a homeowners association (common with condos and planned communities). These aren't part of your loan, but they're a real monthly housing cost, so it's worth including them in your budget.
How the payment is calculated
The principal and interest portion comes from three numbers (the loan amount, the interest rate, and the term) combined with the standard amortization formula to produce one level payment for the life of the loan. Taxes, insurance, PMI, and HOA are then simply added on top.
Because interest is charged on your balance, early payments are mostly interest and later ones are mostly principal. The calculator's amortization schedule shows this month by month.
A quick example
Say you buy a $400,000 home with 20% down ($80,000), leaving a $320,000 loan at 6.5% over 30 years:
| Part of payment | Monthly amount |
|---|---|
| Principal & interest | ~$2,023 |
| Property tax ($4,800/yr) | ~$400 |
| Home insurance ($1,800/yr) | ~$150 |
| PMI (not needed at 20% down) | $0 |
| Total monthly payment | ~$2,573 |
Notice the taxes and insurance add roughly $550/month, over a quarter of the payment. That's exactly why a principal-and-interest-only estimate can be so misleading.
Why your down payment matters so much
A bigger down payment helps in three ways at once: it shrinks the loan (lower principal and interest), it can push you to 20% equity so you avoid PMI entirely, and it may earn you a better rate. Even moving from 10% to 20% down can noticeably lower your monthly cost. Try both in the calculator to see the difference.
How much house can you afford?
A common rule of thumb is to keep your total housing payment (PITI) at or below about 28% of your gross monthly income. So if you earn $8,000 a month before tax, aiming for a payment under roughly $2,240 is a sensible target. Work backwards: plug different home prices and down payments into the calculator until the total payment lands in your comfortable range.
Frequently asked questions
What does PITI mean?
Principal, Interest, Taxes, and Insurance: the four core parts of a monthly mortgage payment. Principal and interest repay the loan; taxes and insurance are usually collected monthly and paid from escrow.
What is PMI and when do I pay it?
Private mortgage insurance protects the lender and is usually required when your down payment is under 20%. It costs roughly 0.5%–1.5% of the loan per year and can be removed once you reach about 20% equity.
How is a monthly mortgage payment calculated?
Principal and interest come from the loan amount, rate, and term via the amortization formula. Property tax, insurance, PMI, and HOA are then added on top. Try it in the calculator.
Run your own numbers: the free mortgage calculator shows your full monthly payment (principal, interest, taxes, insurance, PMI, and HOA) with a complete amortization schedule.
More mortgage guides
- How much is PMI, and how do I remove it?
- 15- vs 30-year mortgage: which is right for you?
- How much house can I afford?
This guide is general information, not financial advice. Rates, taxes, and insurance vary. Confirm all figures with your lender.
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